What If 'Earnings' Matched Returns?

Jim Spencer

September 20, 2002|By JIM SPENCER Daily Press

I love it when guys making 800 grand a year start talking about business ethics. That happened Tuesday at Old Dominion University. As part of a special speakers' series, a group of senior local executives got together to discuss "accountability, responsibility and credibility."

One of their messages?

Let's not overreact to recent corporate scandals, such as the collapse of Enron, WorldCom and Adelphia.

Macon Brock Jr., the chairman and chief executive of Dollar Tree Stores Inc., was quoted as offering this warning: "As a businessman and a capitalist, I'm concerned that we may go to the other side of the ditch and over-regulate. We have to be careful of politicians grandstanding for votes and image, knee-jerk reactions to the public outcry."

Thus saith a man who collected $838,000 in salary and bonus, plus 60,000 stock options, in 2001. He "earned" this reward overseeing a company whose stock didn't pay a penny of dividends and sells today for roughly $16 less per share than it did in June 2000.

Look, Brock is hardly the best-paid exec around. He's certainly not in a league with the crew at Enron or WorldCom. Furthermore, nobody claims he's doing anything wrong, much less illegal, as a manager. His company's stock performance follows a curve that mirrors the Nasdaq exchange where it sells.

The point is this: Brock's not operating in a free market any more than some union guy who's guaranteed 25 bucks an hour to operate a crane, regardless of how business is going. In fact, Brock and every one of the executives who appeared on the panel with him have a lot more security than any of the people who work for them, no matter whether they are union or not.

That's what American business has become. Or maybe that's how it has always been. Overpaid bosses get perks and protection that no truly performance-driven market would ever allow. If results determined Brock's worth, he'd be making 60 percent of what he did in June 2000, because that's what his shareholders' stock is worth -- a little more than half of what it was worth in June 2000.

Instead, Brock got a 2.5 percent raise for 2001.

So he and the rest of the privileged have plenty to do to re-establish accountability, responsibility and credibility before they start blaming grandstanding politicians or anyone else for anything. But this didn't stop them from trying.

"The idea is to control aberrant behavior, not to impede the efficient deployment of capital and drive business into the ground," Norfolk Southern railroad's chief financial officer, Henry C. Wolf, told the folks at ODU.

OK, Hank, let's start with your $853,927 salary. My thesaurus lists "irregular, uncharacteristic, unusual and atypical" as synonyms for aberrant. The financial Web site info I saw lists your salary as the second highest in the company. Sounds pretty atypical to me. What say we re-deploy a little of that capital to the troops on the tracks?

I know Wolf won't mind me asking because he and others at the seminar mentioned that greedy investors and a too-trusting media were also partly responsible for the current corporate scandals.

Let me speak first as a shareholder of more than a dozen publicly traded companies. I have never once demanded unrealistic profit margins from any of them. If I had, I'd probably have sold my stocks and stuffed my money beneath my mattress, where it could have earned more than it has the past 18 months.

I fear the big bosses speaking at ODU have mistaken their rich running buddies, the investment bankers and institutional stock buyers, for real people. It's a natural mistake. These guys share cocktail parties and, sometimes, consulting fees that lead them to act in each other's best interest.

But from back here on the hind leg of shareholder relations, all I ever wanted was for my stock to be worth more at the end of the year than at the beginning.

Which brings me to my professional role is this debacle. The business ethics gurus at ODU seemed to think television, newspaper and magazine reporters promoted certain companies and executives based on their words, when the reporters should have been digging into their numbers.